SA consumer sentiment tumbled to its lowest level in more than three decades during the second quarter of 2022 as a result of a major deterioration in the country’s economic outlook.
Having already slipped from -9 to -13 index points during the first quarter of 2022, the FNB/BER consumer confidence index plunged to -25 in the second quarter of 2022.
PwC senior economist Christie Viljoen told Business Day that SA consumers understand the economy is also being hit hard by electricity load-shedding, which was increased to stage 6 this week, further adding pressure to private sector employment.
“Our baseline macroeconomic forecast does not paint a pretty picture heading towards 2023. The consumer faces a weaker rand, elevated inflation, rising interest rates, slowing economic growth, and an escalating unemployment rate and global disruptions stemming from the Ukraine war,” Viljoen said.
Just last week, the consumer price inflation rate breached the 6% upper range of the SA Reserve Bank’s target, posting at 6.5% in May, a five-and-a-half-year high with expectations that this number will climb in June and July.
With the repo rate already hiked by 75 basis points since the start of the year, forward-rate agreements are pricing another 50 basis points rate hike ahead of the Bank’s monetary policy committee meeting on July 21.
In an interview with Bloomberg at the European Central Bank’s annual policy forum in Sintra, Portugal, on Wednesday, Reserve Bank governor Lesetja Kganyago said the Bank may consider raising rates by half a percentage point — 50 basis points — for a second consecutive meeting next month.
FNB chief economist Mamello Matikinca-Ngwenya said the prospects of further steep interest rate hikes and sinking share prices on the JSE will compound inflationary pressures for middle- and high-income households.
“Although consumer sentiment was widely expected to weaken further given the worsening inflation and interest rate outlook, the extent of the drop in consumer confidence is alarming,” Matikinca-Ngwenya said.
She added that save for the panicked level-five lockdown period during the initial outbreak of the Covid-19 pandemic in the second quarter of 2020 when confidence nosedived to -33, the latest FNB/BER reading is now at its lowest level in 35 years.
Economist Jee-A van der Linde said expectations of higher interest rates in the second half of this year will continue to add to households’ frustrations in the form of higher living costs.
“What’s more,” he said, “the intensification of load-shedding to stage 6 in June will further weigh on consumer confidence in quarter three as there are no signs of SA’s electricity issues letting up any time soon.”
The Russia-Ukraine war puts further pressure on consumers and worsens the current imbalances in the commodity markets which have seen the prices of crude oil and agricultural products surge.
The rise in the price of crude oil and agricultural products has driven domestic fuel and food prices higher, weighing on consumer purchasing power.
The petrol price also increased by R2.43/litre in June as the government continued to provide a R1.50/litre tax break.
PwC’s Viljoen expected the petrol price to increase by about R2.50/litre on July 6 — comprising a R1.75/litre under-recovery in June and the R0.75/litre tax break rollback — bringing up the petrol price to nearly R27/litre in Gauteng.
FNB/BER data show that consumer confidence fell notably across all income groups. High-income confidence soured more than low-income confidence since the end of 2021.
The confidence level of high-income households, those earning more than R20,000 a month, crashed to -30 in the second quarter as the vast majority of more affluent households anticipated a deterioration in their household finances and, in particular, in the country’s economic growth rate.
Data show that the economic outlook subindex of the consumer confidence index fell sharply from -18 to -39. There was also a complete turnabout in the household financial prospects sub-index, which moved from +8 to -5.
The index measuring the appropriateness of the present time to buy durable goods such as vehicles, furniture, household appliances and electronic goods also edged down from -28 to -32, indicating that consumers consider the present as an inappropriate time to purchase durable goods.
Nedbank economist Liandra da Silva said structural issues such as high unemployment and persistent power outages will continue to add to the country’s deteriorating confidence.
The FNB/BER consumer confidence survey provides regular assessments of consumer attitudes and expectations and is used to evaluate economic trends and prospects.
Update: June 29 2022
This story has been updated with additional information.
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